Progressive Tax System – Iceland

Income up to 88,134 króna/year taxed at 31.45%, including national and municipal tax. With personal credit, effective rate is lower.

Income from 88,134 to 247,709 króna taxed at 37.95%. For most workers this bracket applies. Municipal tax included in rate.

Income above 247,709 króna/year taxed at maximum rate 46.25%. One of highest in OECD. For income above ~1.4 million króna/month.

Personal tax credit around 646,740 króna makes first ~1.75 million króna tax-free. Automatically applied by employer when withholding.

Municipal tax averages 14.94% nationally in 2026. Used when employer withholds tax. Varies from 12.44% to 14.94% by municipality.

Municipal tax deducted from income when calculating national tax. Provides partial relief from double taxation.

Funds go to schools, roads, local welfare. Each municipality sets own rate within legal framework.

When working for multiple employers, must inform each about other income to correctly calculate bracket. Otherwise — tax debt next year.

If salary at one employer exceeds 498,122 króna/month, other must withhold at next bracket. Above 1.4 million — third bracket 46.29%.

Personal tax credit used only at one employer. Must specify where to apply to avoid overpayment or underpayment.